Brokers and professional employer organizations: a perfect pairing

There’s been a big shift recently in brokers’ willingness to partner with PEOs, driven mainly by two factors. Photo: Getty Images

It’s a risky bet for a movie studio to rely heavily on the skills of one actor to achieve box office success. In most cases, a strong production team and supporting cast help make a film a blockbuster. A broker, like a movie star, also needs a strong supporting cast to provide the best value to clients. For many brokers, this means teaming up with partners like a professional employer organization (PEO) to offer clients a complete service package.

There’s been a big shift recently in brokers’ willingness to partner with PEOs, driven mainly by two factors:

1. Companies are looking to their brokers to support the entire human capital experience, especially around talent, and it’s difficult for brokers to build this support model internally.

2. The Affordable Care Act (ACA) has driven more small and midsized businesses to look at PEOs as a good option to help manage health care costs and compliance.

As trusted advisors on “all things HCM,” the best brokers are having proactive conversations with their clients and prospects about business strategies to manage their needs around talent, compensation and benefits, and risk and compliance — and that includes PEOs. By building in specific processes to identify signs that a client could benefit from or be interested in exploring a PEO, a broker will be better able to maintain his or her trusted advisor status. Recognizing key events such as rapid headcount growth, expansion into new states, shift in talent needs, or even new senior leadership, is critical. Brokers then need to ensure they’re having a proactive conversation with clients to educate them about the benefits of PEOs and illustrate how they would partner with a PEO. I’ve seen brokers lose clients to PEOs even though they work with them because the client wasn’t aware the broker could bring a business strategy beyond benefits to the table.

Why go PEO?

According to a recent study by the National Association of Professional Employer Organizations (NAPEO), 14 percent to 16 percent of small businesses — those with 10-99 employees — were using PEOs in 2015 to provide payroll, benefits, regulatory compliance assistance and other HR services. Further, companies that used a PEO grew more quickly, and had lower employee turnover and higher rates of business survival than comparable small businesses.

Another benefit of PEOs: Helping with the burden of complying with increasingly complex regulations. Aside from navigating the changing requirements of health care reform, companies face significant state-level regulations as well. According to the Workplace Policy Institute, state legislatures enacted over 100 labor- and employment-related bills during the first half of 2016, and at least 20 employment bills were signed into law at the state level in June alone. These laws mean learning about new requirements related to everything from background checks to paid sick leave.

For small companies with one-person HR teams, just managing payroll and benefits can seem like a herculean task, and that is before adding compliance complexities to the mix. Partnering with a PEO can help businesses deal with HR, benefits management and compliance challenges so they can focus more on their people and growing their business.

According to ADP TotalSource President Maria Black, “As the workforce continues to undergo significant generational shifts and increasing competition in the war for talent, startups — by the sheer nature of their size — are faced with challenges in delivering the attractive benefits that come more easily to larger organizations.” As a result, more entrepreneurs are considering PEOs to give them an edge in attracting top talent. We all know that in the war for talent, benefits are key and PEOs can provide access to high quality, cost effective benefits. Plus, PEO clients are more likely to provide employer-sponsored retirement plans and other benefits that help them attract and retain employees, according to NAPEO.

Brokers are starting to shift their mindset about partnering with PEOs to ensure they are part of their clients’ evaluation, and possibly share in the revenue stream if they partner with a PEO that offers a referral program. In the end, partnering with a PEO is a true win-win for brokers. It allows them to extend their service offerings while meeting the expanding needs of their clients. When it comes to adding more value, it’s not about being the star of the show; instead, it’s about best understanding a particular situation and teaming up with the right supporting cast to tell the best holistic HCM story.